Facts

On June 21, 2001, a fire broke out in a facility owned by the Placer County Water Agency (PCWA). This facility was under construction by F&H Construction Inc. (F&H), the general contractor for the project. F&H contracted with I Kruger Inc. (Kruger) to supply materials and equipment for installation of Kruger's proprietary "Actiflo" filtration system. F&H did not sign the written contract.

The filtration system required the installation of polystyrene honeycomb-shaped hexagonal tubes called lamellas. Some of the lamella modules were found to be slanting upon installation in a concrete tank. PCWA requested that F&H contact Kruger for advice on fixing the modules; Kruger suggested welding L-shaped stainless steel support beams to relieve the slanting. F&H employed welders to install the L-shaped beams and 50 beams were installed prior to the fire in question.

As he was working, one of F&H's welders observed a small flame in one of the lamella modules and attempted to extinguish the flame with his glove. When he was unsuccessful, he looked in vain for a fire extinguisher; no extinguishers were found in the facility. A fellow F&H welder brought over an ice water bucket and dumped the contents on the fire to no avail. A bucket brigade began to put out the flames but the fire continued to grow until they spread to the roofing insulation causing significant damage.

F&H filed suit against several entities but trial proceeded solely against Kruger. A settlement was reached with PCWA and Essex Insurance Company who was the insurer for the project. Defendant Nova Chemicals Inc. filed a successful motion for summary judgment and was dismissed. F&H sought to enter a default judgment against defendant GT Plastics Inc.

PLAINTIFF'S CONTENTIONS:
F&H alleged that the design of the lamella support system was defective and there was no warning that the polystyrene was highly flammable. F&H argued that to save on costs associated with removing the lamella during welding, Kruger advised them to raise it four to six inches instead. F&H argued that Kruger was under a duty to inform Dana Leatherwood, F&H's Welding General Foreman, that the lamella modules were highly flammable and provide F&H with a Material Safety Data Sheet (MSDS) regarding the lamella's flammability. The MSDS stated that the lamella would burn under prolonged exposure to flame or high temperatures. F&H further contended that Kruger was contractually bound to indemnify F&H for all damages except those caused by F&H's sole negligence or willful misconduct.

DEFENDANT'S CONTENTIONS:
Kruger countered that they had no duty to warn F&H's professional welders about the possible flammable nature of polystyrene. Kruger noted that the black polystyrene composition of the lamella modules was written in the contract. Kruger alleged that F&H's welders did not follow the proper welding standards espoused by the American Welding Society, which would have entailed either moving the lamella modules away from the weld site or protecting the lamella with welding blankets or other fire-retardant materials. Kruger argued that despite inclusion in its own Safety Manual for the project, F&H failed to provide fire extinguishers, which allowed the fire to consume the facility.

Settlement Discussions

Plaintiff demanded $1,000,000 but defendant offered $200,000.

Damages

While trial was pending, F&H filed a third amended complaint with leave of court, which claimed fire-rebuild expenses in the amount of $4,750,000. This amount was subsequently reduced to $4,000,000 during trial. As well, prior to trial, F&H dropped their claim for consequential damages amounting to approximately $2,500,000, which included overhead expenses, lost profit, and liquidated damages. In their initial complaint, F&H claimed $7,250,000 plus ten percent interest from the date of the fire and attorney fees. This amount included fire-rebuild expenses of $4,750,000; overhead (delay damages); lost profit; liquidated damages; and prejudgment interest and attorney fees in the amount of $2,500,000. The defendant's construction damages expert, Joshua Ritti, testified that his review of the documents relating to the damages claim submitted by F&H found that, at most, $2,182,078 could be claimed due to fire loss. Ritti deducted $314,000 for unsubstantiated costs that went beyond six months. Ritti found that the 34 months that F&H took to complete the rebuild was unrelated to the fire as there was no critical path impacted. As well, Ritti deducted $1,011,799 for equipment that could have been salvaged had Kruger been informed of the damages claim prior to April 2002. Finally, Ritti deducted $68,268 for inappropriate items included on the damages claim that may have been related to other projects.

Result

The jury held in favor of Kruger and F&H appealed. Although Kruger was alleged to have agreed to pay F&H for the welding work as indemnification for loss arising from the negligence of those "directly or indirectly" employed by Kruger, the court found that, as a matter of law, this language only included those who were Kruger employees and not those hired by Kruger as subcontractors (or peripherally).

Other Information

Kruger filed a motion for attorneys' fees as the prevailing party to which F&H objected as they argued that this item was mutually released prior to trial. F&H argued that the mutual release of attorneys' fees was a condition of a settlement regarding Kruger's cross-complaint for the unpaid balance of the contract. EXPERT TESTIMONY: Plaintiff's engineering expert, Glen R. Stevick, testified that he performed a materials analysis to demonstrate that the black polystyrene used to produce the lamella modules burned when exposed to a butane lighter or a hot welding slag. Plaintiff's expert on the causes and origins of fire, Donald J. Perkins, testified that the fire was caused by the close proximity of the polystyrene lamella modules to the welding. Defendant's mechanics expert, Stephen P. Andrew testified that F&H failed to take the appropriate precautions when it failed to perform a hazard analysis; failed to obtain a hot work permit; failed to protect or remove the lamella modules from the welding activity; and failed to have a fire watch with fire extinguishers at the ready. Abid Kemal, defendant's expert on fire, combustion, and materials, testified that all plastics are flammable but polystyrene is more resistant to burning than other similar materials. As well, Kemal testified that the use of standard carbon dioxide fire extinguishers would not have compromised oxygen levels in the area and would have prevented the spread of the fire. As well, other options were available such as alternative fire extinguishers specifically designed for confined spaces or welding blankets to cover the flammable objects while welding.

Deliberation

4.5 hours

Poll

9-3

Length

39 days